Is driving for business more cost-effective for a self-employed person?
Unless you need a delivery van for work, as a new self-employed professional you’ll usually use your personal car for business trips. In that case, you can claim €0.19 per kilometer driven for business purposes as a business expense. This arrangement usually works just fine during the startup phase of your business. But as your business grows or when you need a new car or van, you’ll have to decide whether using a business vehicle might be a better option for you. Be sure to take your insurance coverage into account as well.
Taxable Income from Business Driving
If you register a car in your company’s name, you can claim all expenses related to that car—including depreciation, fuel, car wash receipts, and maintenance—as business deductions. However, you should keep in mind that there is an imputed income tax for the personal use of your car, unless you drive less than 500 kilometers per year for personal use. This imputed income is a percentage (4% or 22%, depending on CO2 emissions) of the car’s list price. The amount of the additional tax liability is added to your income as a self-employed person. You’ll therefore pay income tax on that amount. If you drive a car that’s 15 years old or older, you can take advantage of the “Youngtimer” scheme. In that case, you’ll only pay additional tax based on the car’s current market value. That makes a big difference!
Lower Premiums for Commercial Auto Insurance
An additional benefit of a company car is that insurance for it is also cheaper. This is because a company car can be insured excluding VAT. As a result, the insured amount decreases—and so does your premium! For a car with a gray license plate, it is mandatory to have company car insurance. It doesn’t matter whether the car is registered in your company’s name or not. At online insurance specialist Cheapp.nl, you can get all types of company car insurance at very affordable rates:
- Commercial Auto Insurance: For Commercial Passenger Transportation
- Delivery Van Insurance: For Freight Transport
- Truck Insurance: For vehicles weighing 3,500 kilograms or more and with a payload capacity of 3,500 kilograms or more
- Fleet Insurance: 10 or more company vehicles
All of these insurance policies are also available for leased vehicles.
Deducting VAT on a Personal Car
If the car you use for business purposes is personally owned, you cannot deduct the VAT when you purchase it. You may, however, deduct the VAT on maintenance, repair, and operating costs—but, of course, only for business use. Be sure to keep accurate mileage records for this purpose. The amount you can claim as a refund is calculated based on the ratio of business mileage to total annual mileage.
Which is more cost-effective: driving for business or for personal use?
Every self-employed person is different, so what’s most cost-effective depends very much on your situation. You can ask yourself three questions to determine what might be the best choice for you:
- Do you need a passenger car or a van for work?
- How many kilometers do you drive for business and personal use?
- Are the total costs of the car higher or lower than the additional tax liability?
Discuss these questions with your accountant to find out what’s most advantageous for you: should you have a company car or not?
Update Your Insurance
If you’re switching from a personal car to a company car, don’t forget to update your insurance. Alpina.nl insures both business and personal vehicles and is always here to help you make the switch. You can quickly calculate your premium online. Alpina.nl compares all Dutch insurance companies. You can also choose additional coverage options. Would you like to learn more about company car insurance? Or would you like to know what other types of business insurance might apply to your company?
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